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Agglomeration and Growth with Endogenous Expenditure Shares

Author

Listed:
  • F. Cerina
  • F. Mureddu
Abstract
We develop a New Economic Geography and Growth model which, by using a CES utility function in the second-stage optimization problem, allows for expenditure shares in industrial goods to be endogenously determined. The implications of our generalization are quite relevant. In particular, we obtain the following novel results - 1) two additional non-symmetric interior steady states emerge for some intermediate values of trade costs. These steady-states are stable if the industrial and the traditional goods are either good or very poor substitutes, while they are unstable for intermediate (yet lower than one) values of the intersectoral elasticity of substitution. In the latter case, the model displays three interior steady states - the symmetric and the core-periphery allocations - which are stable at the same time; 2) agglomeration processes may always take place, whatever the degree of market integration, provided that the traditional and the industrial goods are sufficiently good substitutes; 3) the regional rate of growth is affected by the interregional allocation of economic activities even in the absence of localized spillovers, so that geography always matters for growth and 4) the regional rate of growth is affected by the degree of market openness - in particular, depending on whether the traditional and the industrial goods are good or poor substitutes, economic integration may be respectively growth-enhancing or growth-detrimental.

Suggested Citation

  • F. Cerina & F. Mureddu, 2008. "Agglomeration and Growth with Endogenous Expenditure Shares," Working Paper CRENoS 200820, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
    • Handle: RePEc:cns:cnscwp:200820
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    References listed on IDEAS

    as
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    Cited by:

    1. Cerina, Fabio & Mureddu, Francesco, 2014. "Is agglomeration really good for growth? Global efficiency, interregional equity and uneven growth," Journal of Urban Economics, Elsevier, vol. 84(C), pages 9-22.
    2. Fabio Cerina & Francesco Mureddu, 2013. "Structural Change and Growth in a NEG Model," Review of Development Economics, Wiley Blackwell, vol. 17(2), pages 182-200, May.
    3. Tolstoguzov, Oleg, 2021. "О Возможности Эффективного Ответа На Индустриальный Вызов В Контексте Взаимодействия Человека И Природы [On the possibility of an effective response to the industrial challenge in the context of hu," MPRA Paper 110808, University Library of Munich, Germany.
    4. Colin Davis & Ken-Ichi Hashimoto, 2015. "Industry Concentration, Knowledge Diffusion and Economic Growth Without Scale Effects," Economica, London School of Economics and Political Science, vol. 82(328), pages 769-789, October.

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    More about this item

    Keywords

    agglomeration; growth; endogenous expenditure shares; elasticity of substitution; multiple equilibria;
    All these keywords.

    JEL classification:

    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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